⚠ Building for a PeakModerate threat

Caterpillar (CAT) — threat to the moat

Caterpillar is tripling engine capacity for a boom whose length nobody knows, and it has written down capacity before.

Caterpillar is building capacity for a boom whose length nobody knows. The plan now lifts large reciprocating engine capacity to about three times 2024 levels1, and capital expenditures are expected to be about $3.5 billion in 20262, against $1,597 million excluding leased equipment in 20233.

Capital expenditures excluding leased equipment ($M)1,59720231,98820242,8212025about 3,5002026 guideCaterpillar Form 10-K FY2025; Form 10-Q Q2 2026 guidance
More than double 2023.

The company has been here before. Its locomotive business took a $925 million goodwill impairment in 20224, and in 2017 the closure of a Belgian plant accounted for about half of that year's restructuring costs5. Capacity built for demand that later falls away is expensive to carry and expensive to close.

The difference this time is that the capacity is being added partly by repurposing existing plants, as at Wamego6, which lowers the cost of being wrong.

Caterpillar says it has protection. A report on the first-quarter 2026 call quoted management pointing to frame agreements with cancellation penalties and prepayments as the reason the company had raised its target twice without overbuilding7. Contracts with penalties make a downturn less painful; they do not make it impossible.

Capital spending relative to sales is the thing to watch. If it keeps rising after power generation sales growth slows, Caterpillar will be building for a peak that has passed.

References
  1. Third-party estimateThe plan now lifts large reciprocating engine capacity to about three times 2024 levels, and capital expenditures are expected to be about $3.5 billion in 2026, against $1,597 million excluding leased equipment in 2023.
    TIKR blog on Caterpillar's first-quarter 2026 results - large engine capacity target raised to nearly three times 2024, 2030 growth target of 6% to 9%, frame agreements and gigawatt-scale customers. — Q1 2026 · publ. May 2026 · source ↗
  2. ReportedThe plan now lifts large reciprocating engine capacity to about three times 2024 levels, and capital expenditures are expected to be about $3.5 billion in 2026, against $1,597 million excluding leased equipment in 2023.
    Caterpillar Form 10-Q for the quarter ended 30 June 2026 - backlog, outlook, tariffs, dealer inventory, balance sheet and the RPMGlobal acquisition - MD&A: order backlog, dealer inventory, tariffs, IEEPA recoveries and the 2026 outlook. — Q2 2026 · publ. 5 August 2026 · source ↗
  3. ReportedThe plan now lifts large reciprocating engine capacity to about three times 2024 levels, and capital expenditures are expected to be about $3.5 billion in 2026, against $1,597 million excluding leased equipment in 2023.
    Caterpillar Form 10-K for fiscal 2025 - Item 7 MD&A: consolidated results, sales and profit bridges, tariffs, dealer inventory and the 2026 outlook. — FY2025 · publ. 13 February 2026 · source ↗
  4. ReportedIts locomotive business took a $925 million goodwill impairment in 2022, and in 2017 the closure of a Belgian plant accounted for about half of that year's restructuring costs.
    Caterpillar Form 10-K for fiscal 2022 - segment sales and profit for 2020-2022, the dealer count, sales by application, and the $925 million Rail goodwill impairment. — FY2022 · publ. February 2023 · source ↗
  5. ReportedIts locomotive business took a $925 million goodwill impairment in 2022, and in 2017 the closure of a Belgian plant accounted for about half of that year's restructuring costs.
    Caterpillar Form 10-K for fiscal 2019 - five-year summary 2015-2019, segments 2017-2019, the dealer count and the 2017 Gosselies restructuring. — FY2019 · publ. February 2020 · source ↗
  6. ReportedThe difference this time is that the capacity is being added partly by repurposing existing plants, as at Wamego, which lowers the cost of being wrong.
    The Motley Fool, Caterpillar Q2 2026 earnings call transcript and summary - lead times, backlog delivery, rental demand, Wamego, the 10-megawatt engine restart and Skycatch. — Q2 2026 · publ. 11 August 2026 · source ↗
  7. Third-party estimateA report on the first-quarter 2026 call quoted management pointing to frame agreements with cancellation penalties and prepayments as the reason the company had raised its target twice without overbuilding.
    TIKR blog on Caterpillar's first-quarter 2026 results - large engine capacity target raised to nearly three times 2024, 2030 growth target of 6% to 9%, frame agreements and gigawatt-scale customers. — Q1 2026 · publ. May 2026 · source ↗
Sources
Generated September 25, 2026